Budhi Gandaki can be built by utilizing internal resources, study finds

Astudy commissioned by the Ministry of Energy has concluded that BudhigandakiHydroelectric Project can be built by utilizing internal resources.

“The project's estimated cost of Rs 270billion can be collected from different entities. But a viability gap funding(VGF) of up to 35 percent of the cost is needed to make the projectcommercially viable,” a report prepared by the study panel and submitted toMinister for Energy Kamal Thapa on Monday reads.

The study panel, which was led by ViceChairman of National Planning Commission, Swarnim Wagle, has also recommendedraising existing infrastructure tax and also levying carbon tax on consumptionof fossil fuel to mobilize funds for building the mega hydropowerproject.

The government is currently levyinginfrastructure tax of Rs 5 per liter of petrol to arrange funds for theproject. It has so far collected Rs 15 billion.

The 1,200-megawatt reservoir projectwill be built in Budhi Gandaki River that flows between Gorkha and Dhadingdistricts. It will have a 263-meter high dam.

After scrapping the decision to awardthe project to a Chinese firm by the previous government, the government hadformed the study panel on November 24 to select a suitable development modalityand look for financial modality to build the reservoir project.

The opposition party, which has now wona clear majority in the provincial and federal elections, had expressed seriousconcern over the abrupt decision to scrap the decision to award the project tothe Chinese firm, and vowed to revoke the decision if it returned to power.

“The government should provide VGF ofabout 35 percent of the project cost, or Rs 94 billion, for land acquisitionand resettlement programs for households to be displaced by the project, andalso arrange additional resources at cheap rates which is called viability gaplending (VGL). It can recover the amount from infrastructure tax or carbon taxin the future,” a statement issued by the National Planning Commission (NPC),said.

Such tax can be one of the strongestsources of funding as consumption of petroleum product is growing by 15 percentper annually.

The study panel has also suggestedapproaching multilateral donors and Exim banks of different countries forfunding, and issuing project specific bonds to raise funds from the domesticmarket. Likewise, it has also suggested ascertaining possible downstreambenefits of the reservoir by forming a panel of experts and begins talks withthe countries downstream for benefit sharing. The study panel has suggestedthe project to encourage positive externalities like tourism, fishery,agriculture, urbanization, irrigation and drinking water, among others, andexamine negative externalities like resettlement, environmental impacts; andstudy integrated development planning and investments of federal, provincialand local levels.

It has suggested implementing theproject by adopting company modality with an equity financing of 30 percent and70 percent of loan financing. “Or the government can build the project on its ownthrough the NEA,” the report states.